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Report: Senate Republicans Reveal China Infiltrated Federal Reserve

Op-ed

A new report from Republicans on the Senate Committee on Homeland Security and Governmental Affairs revealed that, for more than a decade, China has been trying to gain influence in the Federal Reserve through a slew of clandestine tactics.

During a 2019 trip to Shanghai, one Federal Reserve employee, referred to as "Individual A" in the report, was forcibly detained on four separate occasions. Chinese officials threatened the employee’s family unless the individual provided them with economic information and assistance.

The findings shine new light on tactics Beijing uses to recruit and manipulate foreign talent. The most notable of these efforts is the Thousand Talents Program, which China has used to lure away thousands of top researchers from countries like the US, Canada, and Japan. Under the program, China offers international talent monetary compensation and career advancement in return for providing their services to benefit the CCP agenda.

According to the report released today by Senator Rob Portman (R-OH), “Multiple Federal Reserve Employees maintain close ties to Chinese academic associations known to be affiliated with China’s Thousand Talents Program.” One Federal Reserve employee admitted to applying to the Thousand Talents Program in return for sponsorship from a Chinese University.

Although the report doesn’t reveal whether or not sensitive information was compromised, it seems unlikely this was totally avoided given other revelations. For instance, the individual who was detained in 2019 revealed that in his final meeting with Chinese authorities they attempted to make him drink liquor and commit to regular meetings and visits to “give economic advice about the Chinese and global economy.” The officials are also alleged to have told the individual that they had recorded his phone conversations and copied contact information of other Federal Reserve employees from his WeChat account.

In total, the report identifies 13 persons of interest, which it calls the “P-Network,” representing no fewer than 8 of the 12 Federal Reserve Banks.

Apart from forced detentions and associations with the Thousand Talents Program, the report revealed that multiple Federal Reserve employees have close ties with other Chinese entities, including the People’s Bank of China (PBOC) and Xinhua News Agency, which serves as the de facto propaganda arm of the CCP.

The report also shows that Federal Reserve employees engaged in unapproved data transfers. One employee with access to Federal Reserve Board data provided modeling code to a university with ties to the PBOC, and another employee with continuous contact with Chinese nationals and universities attempted to transfer large volumes of data to an external site on two separate occasions.

For his part, Federal Reserve Chairman Jerome Powell refuted the committee’s findings in a letter sent to Senator Portman.

"We are deeply troubled by what we believe to be the report's unfair, unsubstantiated, and unverified insinuations about particular individual staff members,” Powell wrote. “Because we understand that some actors aim to exploit any vulnerabilities, our processes, controls, and technology are robust and updated regularly. We respectfully reject any suggestions to the contrary.”

In the report, Senator Portman characterized Powell’s Federal Reserve as being “unable to counter this threat effectively.”

“Compounding this was a lack of internal counterintelligence competency at the Federal Reserve or sufficient ongoing cooperation with Federal law enforcement and intelligence agencies,” wrote Portman.

After the committee originally initiated the investigation, the Federal Reserve initiated a policy that banned employees from receiving compensation from certain countries, including China. However, Portman criticized this action, writing, “the Federal Reserve still has limited approval requirements for international collaborations or prohibitions on participating in a talent recruitment plan.”

“Left unchecked, these gaps continue to present China with an open avenue to disrupt the integrity of the American financial system, jeopardizing U.S. national security.”

While previous U.S. investigations into Chinese espionage have highlighted Beijing’s efforts at taking down the American tech industry, this latest report shows that Xi’s ambitions don’t stop with Silicon Valley. As China continues to openly challenge the American led order, there is no domain that won’t serve as a battlefield, especially international finance and economics.

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